By Charlotta Hedman
It’s not easy setting up your own business. You might have a great idea, but to make it work you usually need to spend quite a lot of money. And if you’re a music start-up the situation can be even trickier.
Not only do you have to deal with all the usual costs involved in starting up a company, you also have to apply for the right to actually use your product.
According to Gregor Pryor, a partner at ReedSmith who’s specialised in Digital Media, obtaining music licences for a digital music service is an “extremely complex and time-consuming undertaking “.
“In a lot of cases, rights holders ask for relatively large sums of money in return for those licences. As a result, there is a high barrier to entry and cost to market for digital music start-ups. The effect of this is that only those that are very committed or blissfully ignorant enter the sector“, says Pryor.
Someone who’s been through the hoops of the licensing industry is Clive Gardiner of we7. According to him a licensing issue can make or break a start-up.
“Startups are not in the game until they have the required licenses in place. Rights holders are inundated with new propositions all the time and their resources are limited. Their queue is often prioritised by who has the deepest pockets.
Although this is short-sighted, we can all think of aggressive startups who paid large sums to rights holders for licenses and then quickly crashed”, says Gardiner.
In the last 3 years Gardiner’s licensed more than 6 million songs from all types of licensors; the 4 majors, indie labels of all shapes and sizes, aggregators, digital distributors, directly from artists plus publishers and collections societies.
According to Gardiner, “it’s been a slow, complex and challenging licensing journey – but I’ve worked in this industry for many years on both sides of the fence, and so I knew our expectations had to be realistic”.
Why then is licensing so tricky? Are the laws just too confusing?
According to Gregor Pryor “copyright law is inherently multi-faceted and the manner in which various copyrights and performers’ rights are divided across different owners, managers, territories and domains means that it can be very difficult to keep track of who is licensing what rights where.
Although according to him it’s not the laws that need changing.
“There is a lot of talk about copyright reform and a need for sweeping change. In fact, copyright law itself changed in 1996 in direct response to digital technologies. There are some areas of copyright law that could benefit from updating to make them fairer or more efficient, but for the most part, the law is fit for purpose. What isn’t fit for purpose is the cumbersome and fragmented structure of collective rights management bodies and, on a smaller level, even record labels. Digital technology chiefly drives efficiency. The “system” needs to become equally efficient.”
Pryor says that a lot of the perceived difficulties in the licensing process stem from piracy and he doesn’t think right-holders have done enough to combat illegal models by promoting new, legitimate businesses.
“I’m fortunate enough to advise several leading digital music businesses and I cannot think of one licensing negotiation with a major rights holders or collection society where I didn’t think that some of their terms were patently unreasonable or uncommercial”, says Pryor.
According to Clive Gardiner the rights holders should do more to understand the perspective of a start-up.
“Rights holders need to be more patient. Building a consumer proposition takes considerable time – and rights need to be granted for long enough to allow this eg 3 years.
Investors need to see stable, known costs for music in the same way that they can budget for overheads, supplies etc. Better exposure of rights holders to how investors think would help this.
In digital licensing, costs often remain the same or even go up every year, the exact opposite of other business sectors where consistent growth brings economies of scale and extra margin to fund further growth. Rights holder should give ‘digital volume discounts’ based upon hitting mutually agreed targets.
Some startups can offer tremendous value in helping rights holder understand the ever-changing customer environment and behaviour. Data and insight can add value over and above the financial worth of a deal. This is often under-estimated by rights holders.”
Pryor on the other hand advices start-ups to “get a good lawyer and, if you can, get them cheaply” in order to tackle the licensing jungle. The system might change, slowly, but for the start-ups dealing with the reality of licensing now patience and a helping hand seems to be the way to go.
Check out the next Music 4.5 event for more information, where Gregory Pryor will be talking about licensing, different jurisdictions and glocal routes to market. Get your early bird tickets now, before the 6th of August.
During the event brave music start-ups will also have the chance to pitch to a panel of industry players. For more information about how to pitch get in touch with Rassami Hok Ljungberg, rassami @ 2pears.com.
Get a good lawyer and, if you can, get them cheapllicensing, different jurisdictions, glocal routes to market
